$2.7M ‘slush fund’ used by L.A. County water district to pay political allies, friends, lawsuit says

LAWSUIT CLAIMS

• Central Basin board, former general manager and attorneys set up a $2.75 million slush fund to pay lawyers, consultants, friends and employees;

• Former Democratic Assemblyman Tom Calderon was among those who benefitted from the fund;

• The board, former general manager and attorneys made false claims about the fund and how the money was spent;

• The board, former general manager and attorneys discussed a water storage plan in closed session, violating the state’s open meeting laws; and,

• As the plaintiff, Vasquez is acting under the whistle-blower statute, which allows her to collect damages.

A water district that serves southeast Los Angeles County used a $2.75 million secret “slush fund” to funnel cash to political allies, relatives, board members and friends of district employees, according to a recently unsealed lawsuit filed in Superior Court.

Filed by Central Basin Municipal Water District board member Leticia Vasquez, the lawsuit alleges former Democratic Assemblyman Tom Calderon received thousands of dollars from the secret fund.

Filed as a whistle-blower claim, the lawsuit alleges the board and the general manager lied about public business under the cloak of a state law that allows them to meet in private.

Vasquez also alleges the lawyers and Aguilar threatened, harassed and intimidated her when she made inquiries about the fund and how it was used.

According to the suit, the board and general manager violated state open-meeting laws under the ruse of discussing “pending litigation.”

One government watchdog said the allegations are troubling.

“If they are paying someone for services that aren’t provided, then that is a false claims violation. People can be prosecuted. They can be forced to return all the money,” said Gil Aguirre of San Dimas, an activist who has followed the case and has won several open-meeting law cases against public agencies.

Vasquez’s lawsuit was first filed on Aug. 16, but it was sealed because of its status as a whistle-blower lawsuit.

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At the heart of the suit is a claim that a multimillion dollar slush fund was created to design and manage a secret water-storage program that Aguilar, the former general manager who was deposed in a separate civil suit, acknowledged.

In his deposition Aguilar said board members “didn’t want anybody to know what we were doing, which is very difficult for a public agency.”

The fund was to be managed by the attorneys, and the public would not hear about it, the former general manager admitted under oath.

“All the decisions and all the discussion would be done under closed session,” Aguilar said in his deposition.

In August 2012, the governor signed legislation, sponsored by Alan Lowenthal, D-Long Beach, preventing Central Basin from carrying out the secret storage program.

Water storage had been an issue since the late 1990s. By the late 2000s, the Water Replenishment District and most cities in southeast L.A. County reached agreement on a storage plan.

But Central Basin Municipal Water District opposed it and attempted to preempt the storage plans of the replenishment district and other water utilities by creating the slush fund, according to court documents.

As part of the battle between the two agencies, Central Basin openly used money from the fund to pay for an environmental impact report, which exposed it to scrutiny.

If questions arose, then-former Assemblyman Tom Calderon, a consultant to the district, was on call to help Central Basin craft an explanation that would sell a Sacramento audience, according to court documents.

In his deposition Aguilar said the secret storage plan was the biggest project Calderon worked on during his years as a $12,000 month consultant for Central Basin.

Vasquez’s suit seeks information about how the $2.75 million set-aside, which she termed a “sham,” was ultimately spent.

“The ground water storage program they created is worthless,” she said. “That was an excuse for them to get the money out.”

The lawsuit claims money was moved by “secret wire transfers” without the authorization of the district board and without recording the payments on the public warrants, an accepted and transparent accounting method normally used by public agencies.

A letter from an auditing firm raised suspicions about the fund and said Central Basin did not provide original documents.

“We have not been provided any documentation or other information verifying that the District’s Board of Directors approved the initial deposits into the trust accounts, which exceeded $2 million,” wrote Greg Fankhanel, a CPA with Teaman, Ramirez & Smith, Inc.

Aguilar said Wance told the board that the water storage plan could be discussed in closed session.

“We wanted to make sure this would be airtight against any lawsuits,” he said.

Douglas Johnson, a fellow with the Rose Institute of Local Government in Claremont, said barring the public from hearing about the water storage plan, including an environmental impact report, was “baseless” and “ridiculous.”

“Especially since what they are trying to hide is an EIR, which by its very nature should involve community engagement and public outreach,” Johnson said.

Central Basin Water District, headquartered in Commerce, has been subject to increased scrutiny after federal authorities raided its offices as part of the investigation into Tom Calderon.

The former lawmaker, who left office in 2002, has been a consultant to the Central Basin district for many years, receiving as much as $700,000 over eight years.

Last month, Calderon was charged with conspiracy to commit money laundering and money laundering by the U.S. Attorney’s Office; his brother, state Sen. Ron Calderon, D-Montebello, was charged with 24 counts of bribery and corruption involving an insurance scam at a Long Beach hospital and for taking bribes from FBI agents posing as Hollywood executives peddling favorable legislation.

Both have entered not-guilty pleas. Kopp, Tom Calderon’s attorney, said his client would fight the case. Sen. Ron Calderon has taken a leave of absence from the State Senate.

Vasquez, a former Lynwood mayor who was recalled in 2007, was elected to the Central Basin board of directors in November 2012 and took office Jan. 6, 2013.

As a whistle blower, Vasquez is also seeking damages of no less than $1.75 million, according to the lawsuit.

Opponents say Vasquez is motivated by money and is trying to profit from the case. Vasquez said using the state whistle-blower statute, known as the California False Claims Act, was her only option to protect voters in the district.

“I strongly believe the ratepayer and the Central Basin should get the money back,” she said.

District officials have declined to share information about the secret fund and instead hired an outside consultant, Arent Fox, to probe transactions related to the money.

“We expect in the near future a report will be back from the firm looking into it for us,” Central Basin spokesman Joseph Legaspi said on Tuesday.